Converting from Vanguard Solo 401k into a Roth

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broccoli100
Posts: 2
Joined: Tue Nov 09, 2021 10:29 am

Converting from Vanguard Solo 401k into a Roth

Post by broccoli100 »

I have been searching through all of the threads on this topic and I have read through the entire
Vanguard Individual 401(K) Basic Plan Document but I cannot find a clear or definitive answer as of yet.

My Vanguard Individual (also called Solo) 401k plan contains the typical pretax funds from employee deferred and employer contributions.
I also have a Roth Solo 401. I am older than 59 1/2.

I would like to convert from my Solo 401k (and pay the relevant taxes of course), into any Roth account. The Vanguard
representative told me that I cannot convert these funds into my existing Roth SOLO 401k.

Does anyone know of how I can achieve this another way? E.G.
1. Rollover the Solo 401k pretax into a Traditional IRa and then convert to a Roth (paying the relevant taxes)?
- Can this be done within Vanguard?
2. Convert the Solo 401k directly into my traditional Roth account (paying the relevant taxes).
3. Any other way?
Could I achieve this by moving our funds to a different entitiy such as ETRADE, Fidelity, etc.?
If this question has already been addressed, could someone point me to the thread?
Thank you!
HomeStretch
Posts: 11419
Joined: Thu Dec 27, 2018 2:06 pm

Re: Converting from Vanguard Solo 401k into a Roth

Post by HomeStretch »

I believe the mainstream Vanguard Solo 401k plan does not allow in-plan Roth rollovers.

I believe the mainstream Vanguard Solo 401k plan does allow in-service distributions (including partial distributions) at age 59-1/2+. You should be able to take an in-service distribution from your traditional 401k account and convert it to a Vanguard Roth IRA. If you have both traditional and Roth balances in your Vanguard Solo 401k, you would have to check with Vanguard whether there are any sort of ordering rules for distributions (for example, can your 401k distribution be just tax deferred or must it be both tax deferred and Roth).

If it’s important to you that you keep your $ in the Solo 401k plan, you could amend your plan to E*Trade’s plan which allows in-plan Roth rollovers.
Topic Author
broccoli100
Posts: 2
Joined: Tue Nov 09, 2021 10:29 am

Re: Converting from Vanguard Solo 401k into a Roth

Post by broccoli100 »

Thank You Homestretch for your input!

After a thorough discussion with a Vanguard Flagship representative and my accountant here is my current plan of action:

1. I will rollover PRETAX funds from my Traditional IRA into my Solo 401K account. This will leave mostly POSTTAX funds in my Traditional IRA.
2. I will then Convert all the funds in my traditional IRA (which are now mostly Posttax) to my traditional Roth account.
3. After a year has passed, I will begin to move funds from my Solo 401K account back to my traditional IRA account and then convert
these funds to my traditional Roth account througout the future years (Paying the relevant taxes in the process).

The vanguard flagship representative confirmed that this is all possible within Vanguard, and, during our conversation
he also double-checked with the Vanguard back office team to get their confirmation as well. It was so good to have a fully
knowledgeable representative on the line who understood everything immediately and asked pertinent good questions!
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cowdogman
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Location: Washington State

Re: Converting from Vanguard Solo 401k into a Roth

Post by cowdogman »

broccoli100 wrote: Tue Nov 30, 2021 11:09 pm 3. After a year has passed, I will begin to move funds from my Solo 401K account back to my traditional IRA account and then convert
these funds to my traditional Roth account througout the future years (Paying the relevant taxes in the process).
I'm looking at a similar issue. One other option to 3 is to take distributions from the solo 401(k) and manually roll them over within 60 days to a Roth IRA.

See https://www.irs.gov/retirement-plans/re ... 1rollovers
Can I roll over distributions from a designated Roth account to another employer's designated Roth account or into a Roth IRA?
Yes. However, because a distribution from a designated Roth account consists of both pre-tax money (earnings on the Roth contributions) and basis (Roth contributions), it must be rolled over into a designated Roth account in another plan through a direct rollover. If the distribution is made directly to you and then rolled over within 60 days, the basis portion cannot be rolled over to another designated Roth account, but can be rolled over into a Roth IRA.
Note "but can be rolled over into a Roth IRA."

I would confirm this with Vanguard.
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